Migration Decisions And Persistent Earnings Differentials: Evidence From Thailand

Abstract

Shenoy estimates the perceived cost of internal migration and associated labor supply elasticity in Thailand using the revealed-preference location decisions of workers. Shenoy develops a multiperiod model of the location decision where observed earnings are an imperfect proxy for the net present value of a migration. Shenoy uses global commodity prices to construct instruments that identify permanent and transitory components of local earnings. Reduced-form evidence suggests that workers are sensitive to the share of the permanent component in an earnings innovation. Given this, Shenoy estimates a structural model of migration to recover cost parameters, exploiting variation in net present value induced by the instruments. Over a range of discount rates, Shenoy estimates the average cost of migration to an individual to lie between 0.3 and 1.1 times annual earnings. Fixed costs of moving (which include both financial and psychic costs) account for 60 percent of this, with the remaining 40 percent varying by distance. Furthermore, variation in idiosyncratic preferences is more than double the spatial variation in earnings. Using the parameter estimates of the model, Shenoy finds that migration contributes 8.6 percentage points to local labor supply elasticity, split almost evenly between workers entering a province and fewer locals exiting. The model suggests that 20% of long-term earnings differentials over space can be attributed to perceived moving costs.

Ashish Shenoy

Assistant Professor, Agricultural and Resource Economics, UC Davis

Shenoy's field of interests are Development Economics, Migration, Seasonality, Household Insurance, and Local Institutions.

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